A drought in March and April, followed by torrential rains and floods, damaged crops in India’s northeast, a region that accounts for three-quarters of the country’s tea output. As a result, tea production is expected to drop by 3% to around 960 million kilograms through the end of the year, according to industry executives.

Though the percentage drop appears small, the decline in output is having an impact on prices because demand for tea in India is rising 3% annually, according to D. P. Maheshwari, managing director of Jay Shree Tea & Industries Ltd., which has tea estates in India and Africa.

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“Demand is far stronger than the production. So the shortage will continue and there will be pressure on prices,” he said.

Industry executives expect tea prices to increase 20-25 rupees ($0.36-$0.45) a kilogram in the next couple of months from the current price of about 120 rupees/kg.

Moreover, demand for tea usually rises during the cold winter months, putting further pressure on prices, said K.K. Baheti, chief financial officer of Mcleod Russel India Ltd., the country’s largest tea producing company.

Despite the price rise, the majority of tea drinkers are unlikely to shift to coffee.

In India, tea is popular among wide variety of social classes and age groups, unlike coffee, which is consumed mainly in southern India and in cities. About 70%-75% of India’s population consumes tea, according to Mr. Baheti and Mr. Maheshwari.

International coffee companies such as Starbucks are starting to branch out in India, but they aren’t aiming for the vast rural population. Starbucks, in a joint venture with Tata group, opened its first India store in Mumbai last month and has said it plans to open a total of 50 by the end of the year.

Prices for a Starbucks coffee range from 80 rupees to 200 rupees. In contrast, a glass cup of tea from a roadside stall in New Delhi costs five rupees, though the price is rising. A standard Nescafé coffee can be bought for around 10 rupees at street stalls.

India is the world’s second largest tea producer after China. Higher prices for tea won’t only pinch domestic consumers, but also those in countries that often buy tea from India, such as Iran, Iraq, Russia and Pakistan.

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